With the US debt ballooning to a new record of $16.7tln and the deadline to fix the ‘debt ceiling’ expiring on October 1, a default threat looms over the world’s largest economy. Experts agree the government will broaden its borrowing limit.

The latest warning to Congress comes from the
International Monetary Fund, who urged the US Congress to reach
an agreement to raise its debt ceiling and avoid a federal
government shutdown.

“This is important for the continuation of the recovery in the
US and beyond that in the global economy,” IMF spokesman
Gerry Rice told reporters in Washington DC Thursday.

As of September 25, the US Treasury reported its federal debt at
$16,699,396,000,000.00 in their daily treasury statement, a figure which has been reported
for 130 days straight, situating spending about $25 billion shy
of the legal limit of $16,699,421,095,673.60.

Treasury Secretary Jacob Lew calculated the US would run out of
money by October 17 and have less than $30 billion cash in hand
if Congress fails to pass its spending bill by October 1, when
the new fiscal year starts.

If the US authorities don’t agree to raise its ‘debt ceiling’-
the maximum amount of money the US can borrow – the country will
need to admit it can’t pay its bills. While a default of the
world’s biggest economy is highly unlikely in practice, in theory
it would result in the deepest crisis ever, Igor Nikolaev,
director of the strategic analysis department at PKF, a
Moscow-based auditing firm, told RT in an interview.

“Should the US default, global trading will come to a halt,
with absolute uncertainty hanging over the global economy,”
said Nikolaev.

Regardless of the depth of the US debt abyss, the country has
never officially violated its ‘debt ceiling’, that’s been in
place for almost a century. And that’s simply because the
country’s policymakers have always raised the affordable
limitations, insisting it was legal.

“The United States can pay any debt it has, because we can
always print money to do that. So there is zero probability of
default,” Alan Greenspan said on NBC's ‘Meet the Press’ in
August.

In another argument, experts say the Federal Reserve itself is
the second biggest holder of US public debt, which means it can
easily relieve the overall burden on the part it holds.

The US most recently raised the debt ceiling to $16.699 trillion
in May 2013, keeping the economy a safe distance from the
so-called ‘fiscal cliff’.

“The country needs to smell smoke to make the country do
something about their massive debt. Maybe when the ratio of their
debt to GDP nears 100 percent, they’ll start thinking over the
ways to cut the burden,” said Nikolaev.

‘Debt ceiling’ and political floors

The fiscal issue has now turned into a political fight, with
President Obama taking on Republicans in negotiations over how to
tackle the country’s $16.9 trillion in amassed debt.

Republicans and Democrats are using the debt ceiling debate as a
platform to discuss and negotiate larger budget issues- what
programs the government can – and cannot – afford to keep.

Senator Ted Cruz, a Republican, delivered a 21 hour, 19 minute
filibuster tirade against Obama’s Affordable Health Care Act on
Wednesday. The debt ceiling is not an economic debate, but rather
a political arena for Congress to re-visit past and future
legislation.

In short, it’s a political gambit for Republicans who don’t like
Obama’s healthcare program, which they claim costs American jobs
and must be defunded.

The harebrained antics of Congress are likely to play out until
the Republicans get enough from Obama to quell their calls to
‘shut down Washington’.

In 2011, the debt ceiling limit extension was stipulated on the
condition it include ‘sequestration cuts’ - an automatic
‘haircut’ that reduces the budget deficit and is heavy-handed on
defense spending.

If sequestration cuts are re-approved, discretionary spending
would be capped at $967bn in 2014, instead of the $1.058 trillion
the Democrats want.

Democrats, who hold the majority in the Senate and seem to think
they have enough votes in the House, are “almost across the
board,” on their position not to allow sequestration this
time around.

Americans are almost split down the middle on raising the debt
limit, with 46 percent for and 43 percent against, according to a
Washington Post poll.